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Lessons from the dotcom pioneers

MT catches up with four veterans of its 1999 ranking of the hottest UK web start-ups, including lastminute.com founders Martha Lane Fox and Brent Hoberman. What can they pass on to today's generation of young entrepreneurs?

by Rhymer Rigby

Published: 31 May 2012

Last Updated: 09 Oct 2013

How long ago it all seems. Those heady, millennial days when the internet first took off and every new business was an 'e-business'.

Who could forget all those bright-eyed, T-shirt and combats-clad young web entrepreneurs suddenly worth hundreds of paper millions overnight? Or the vertiginous rise in stock market indices on both sides of the Atlantic they spawned? We're talking about the dotcom boom of the late 1990s and early noughties, of course.

It was into this world that MT's own attempt to pick online winners, the MT/Bain e25 was born. A ranking of the UK's 25 hottest internet start-ups, it ran in four issues from November 1999 to September 2000, neatly bookending the period of the boom.

Only 'pure' internet start-ups were allowed (ie, no corporate spin-offs) and they had to be British. How did we do? Names like Lastminute.com and style trend monitor WGSN (bought by Emap in 2007 for £140m) featured prominently and are still going great guns today. Some brave attempts fared less well (who remembers the Internet Exchange chain of web cafes?), while others crashed and burned spectacularly - like fashion website boo.com, which blew £125m in six months before going under in May 2000.

Nevertheless, it was a sunny, ambitious and optimistic moment in business history when anything seemed possible - a time that stands in stark contrast to the austere and anxious atmosphere that prevails in much of UK plc today. 'For a brief moment, young people were celebrated, inspired, encouraged and energised to start amazing businesses on a grand scale,' says Ajaz Ahmed, 38, who founded dotcom survivor AKQA media in 1995.

It didn't last long - unlike the US, the UK was late to the dotcom party and the 'IPO window' in which companies were able to go public was brief. There were only three big ones: ISP Freeserve (July 1999, £1.5bn), QXL (October 1999, £250m) and Lastminute.com (March 2000, £571m). After the bubble burst in late 2000 (the benchmark US Nasdaq index lost 60% of its value in six months) many of the e25ers pulled the plug on their online ambitions and went back to their day jobs.

Nonetheless, the impact of the era continues to be felt today. As a consumer in 1999, you probably bought your music on CDs and your books in bookshops. You may have had a mobile, but it was voice calls and text messages only. You probably still paid cheques in at the bank. Email was a novelty and you got your news from printed newspapers.

Now, most of these things are being consigned to history - apart from the mobile. The iPhone and its Android equivalents sell in their tens of millions and their ubiquity has produced new and unexpected business opportunities. The app economy is booming, and our phones have become devices of choice for photos and videos. None of this could have happened without the internet's first dotcom flowering.

Interesting too are second-generation disruptions. The bookselling business was one of the first to have its sales and distribution model turned upside-down, thanks to Jeff Bezos's Amazon. Now it's happening again, as a product format that hasn't changed for centuries suddenly confronts e-books, the Kindle and the Nook.

If the internet changed our lives, it has itself been changed - these days, big names dominate. Futurologist Patrick Dixon says: 'I think one thing that's clear is that the web is about brands - and there's only room for a handful of mega-brands. There have been lots of smaller companies, but if they have an interesting idea or bit of code, they get sucked into the vortex of Amazon or Google.' He adds: 'I went to a Salesforce.com conference and they have 200,000 app developers. So you have massive innovation at the edge, but there's only room for one or two Salesforces or search engines.'

But the overriding truth is that the dotcom era never really ended and its biggest effects are yet to come. Smartphones are democratising the internet and pushing it way beyond the middle-class westerners who were its early adopters. They're also getting cleverer: soon, using a phone as a wallet will be commonplace, as will conducting financial transactions phone to phone. And it'll go further. The long-awaited 'internet of things' ('things' like a fridge that buys the milk for you) may be upon us. Thanks to 3D printing, you'll soon be able to buy, download and print a whole range of objects in your own home.

Whatever happens, we can be certain that just as surely as Facebook worries Google, which usurped Microsoft, which had IBM's lunch, there will be more disruptions that blindside many and overturn conventional wisdom. 'The internet is still in its infancy compared with more mature media and infrastructure,' says Ahmed 'The biggest innovations and breakthroughs are ahead.'

Dixon takes a similar line: 'In 2300, they'll look back and say that the digital age really didn't get going until 2030.'

Brent Hoberman and Martha Lane Fox, Co-founders, Lastminute.com

As founders of the UK's best-known internet company, Brent Hoberman and Martha Lane Fox were the most public faces of the UK's dotcom era. Lastminute was ranked top in the first e25 list and second in the next two, and pictures of its relaxed and casual-looking founders appeared in MT and elsewhere at the time. Fast-forward to 2012 and both are still around and in the public eye - although Lane Fox very nearly wasn't.

Lastminute was sold to US travel company Sabre Holdings in 2005 for £577m, or 165p a share. This was less than half the company's March 2000 IPO price of 380p, but a marked improvement on its 2002 low of 17p. Lane Fox left the business in 2003 and Hoberman in 2007.

In 2004, Lane Fox was involved in a serious car accident in Morocco that nearly killed her, required over a year's hospitalisation and left her with long-term physical problems. Even now, she says: 'One reason I don't do a single job is because I can't be relied upon completely. My life changed profoundly after the car crash.' Even so, she maintains a portfolio of positions that would put most people to shame. She serves on several boards, including those of Hoberman's furniture site, mydeco.com; M&S, as a non-exec; and Channel 4. She is also chair of Lucky Voice, founded in 2005, 'which has eight karaoke venues across the country'.

Ever the internet evangelist, she is the Government's digital champion and chairman of Go on UK, a partnership that aims to bring the benefits of the web to every individual and organisation in the UK. 'It's about trying to build out more digital capability,' she says. 'There's still a huge job to be done - 8.2 million adults never go online, and only 15% of SMEs use the internet effectively. If you can unleash that potential, the UK economy will be more likely to grow and enjoy a world-leading position. This is as important as it was when I was standing on a box for lastminute.'

Hoberman has his fingers in a lot of pies, too. Board directorships include the Guardian and social travel network Wayn.com, which he chairs. He's also a governor of the University of the Arts, London, and founded mydeco.com. And he's an angel investor in a number of online businesses, notably furniture group discount site made.com. 'I don't actually run any businesses,' he admits, 'but I'm involved in a lot of different things, which suits me.' A role model to today's tech entrepreneurs, he remains upbeat. 'The dotcom era was very positive, but I think we're in another very positive era now,' he says. 'There's a lot of entrepreneurship and a lot of people starting companies. I'm very optimistic.'

Tim Jackson, Founder of QXL

Although beaten into second place in MT's inaugural November 1999 ranking, one company went on to top all three subsequent tables. But this undisputed king of the MT/Bain e25 is almost forgotten today. Yet for a few years, the auction site QXL.com (QXL stood for quick sell) was the UK's answer to eBay. Its founder was Tim Jackson, a former journalist who'd written for the FT.

QXL was a big IPO. It went public on the LSE and Nasdaq in October 1999, a share price of 195p raising a cool £250m. The company then enjoyed a white-knuckle ride to put Alton Towers to shame. Inside six months, its shares rocketed to 745p, valuing the business at £2bn and allowing it to acquire German rival Ricardo, before collapsing spectacularly to become part of 99% club - those dotcom shares that had lost 99% of their IPO value. Indeed, as the company's CFO later joked: 'We were in the 99.9% club.'

For many dotcoms that would have been it. But QXL's shares then rebounded, and in some style. It went on to become the best-performing share in 2004-05, and when it was sold to South African media outfit Naspers in 2007, it realised a hefty £946m. Investors who had hung in there from the IPO were well rewarded for their loyalty, with a year-on-year return of nearly 20%, compared with the FTSE's 5% over the same period.

But Jackson had moved on from his start-up long before then. 'In 1999, I handed over the reins of QXL to become a venture capitalist, and I continue to make investments in start-ups,' he explains. 'I also sit on the boards of companies formally and advise them less formally.' For entrepreneurs, he says, 'One thing that's valuable is to be able to talk to someone who has had the same problems - whether it's dealing with stock options or legal issues. I also find it very stimulating to talk to young entrepreneurs.'

Part of Jackson's sizeable shareholding in QXL went into a charitable foundation. 'One thing we did was apply technology to how grants are made to poor countries. A project we undertook in Africa was to help channel funding to tiny community organisations to help children affected by HIV. We showed it was possible to get the funding as close to the communities as possible and do it with all the proper oversight.'

Jackson is also involved in what he describes as social projects. 'We all consume so much stuff. I wanted to do something that would encourage people to lend things they owned to other people and the result was LendAround. We started with DVDs, as they're something most people own and never use. It was a not-for-profit and became a little business.' In the end, he says, it didn't work out. 'But that's one of the lessons of the dotcom era - the vast majority of businesses won't succeed, no matter how hard you try. You shouldn't be afraid of failure.'

He likes using technology to harness people's better nature: 'There are lots of opportunities to put this kind of impulse into effect and to encourage less consumption.'

Ernesto Schmitt, Founder of Peoplesound.com

Former management consultant Ernesto Schmitt founded Peoplesound.com in 1999. Ahead of its time and its industry, the site featured music downloads and new artists and it ranked 11th in the first e25, rising to a high of fifth in the June 2000 listing. He sold it to the digital music business Vitaminic in 2001 for a modest post-bubble £30m.

While other dotcom entrepreneurs went on to become angel investors, he took a different route. 'After Peoplesound,' he explains, 'I spent a decade out of digital. My main motivation has never been format. I've always been driven by ideas and I get satisfaction from doing different things.'

He joined Tesco as 'part of the team building Tesco round the world, trying to figure out what worked in different countries.' From there, he moved to the electronics retailer DSG International (owner of Dixons) before being headhunted by EMI, the music industry dinosaur he had tried to shake up at Peoplesound. His not-too-modest remit there was to 'rework the music industry from within.' He left the struggling EMI in 2010, by which time it was quite apparent that this task was beyond any single individual, and returned to his entrepreneurial roots.

He hopes his current venture Zeebox will change the face of television.

'Over the past 10 years,' he explains, 'TV has stayed pretty much the same in terms of how we consume it and use it. It's the last dumb screen in the house.' But, he says, there's clearly an appetite for it to be much more. 'People already enhance their TV viewing digitally via phones and laptops. They're trying to interact with their friends.'

Zeebox's idea is to bring you second-by-second 'social TV' on another screen, be that your iPad, phone or laptop. So if you log onto Zeebox or use its phone app, it will give you the Twitter feed for the show you're watching, related information, links, apps and downloads, the chance to chat and so on. Schmitt says: 'This has the potential to future-proof TV. Because it's a live social interaction, you're more likely to actually watch the show in its slot rather than record it and skip the ads.'

Interest has been high. 'Sky is taking us very seriously and every major US network is interested' - in contrast to the sector he worked in before. 'If you look at what happened to music, it was the worst possible outcome for the industry. Broadcast has been much more engaged.'

Looking ahead, Schmitt is bullish. 'At Zeebox we've raised an astonishing amount of money. It's one of those mad ideas that's won substantial backing and we're growing spectacularly. TV is absolutely ripe for revolution. Dual-screen enhanced TV will be the norm.'